As a small business owner or a freelancer, it can be very difficult sometimes to ensure your invoices get paid on time.
While profits are important for the longevity of your business, you need positive cash flow in order to meet your monthly financial obligations. Without that, your business could be in a lot of trouble.
In order to get that positive cash flow, you need to make sure your invoices are paid on time. These following tips do not just cover standard invoices, but proforma, commercial and other invoices as well.
So let’s look at the 7 best ways you can do that, starting today.
#1 Create your payment polices first
Before you’ve even confirmed your clients, you need to take care of your payment policies. These will act as a reference guide to which you can point to when any problems arise. This is especially useful to avoid problems or surprises by letting your client know what is expected of not just them but also of you.
In your policies you should include:
- Whether you will take any payments upfront
- How much time is allowed for the payment
- Whether you will add on any late fees, either as a percentage or a fixed amount
- What types of payments you’ll accept (bank transfer, debit, cash, etc.)
- Whether you will deliver the goods or services before the payment is made
These will help you minimize the problems and get your invoices paid much faster.
#2 Set your prices
Another thing to do before you even get your clients is to make a price list. Your prices should reflect your experiences, as well as your location, speed, quality of service or product and your competition.
When you set your prices, you will be able to communicate exactly what your customer needs to know. However, you should not set your prices too rigidly. It is important that you have flexibility depending on the size of the order, where you sacrifice the price per unit for a greater quantity and revenue overall.
#3 Send a quote
Creating policies and setting your prices will help set you up in general for all your clients. However, you will still need to be exact on the job you’re hoping to work on.
Most specifically, you need to answer the following questions:
- What are your client’s expectations?
- What is the time frame for you to deliver the services or products?
- What exactly is the extent of the services you’ll provide?
With these specific details determined on a case-by-case basis you can clarify your client’s wants and what he will pay for.
This will help clear up any potential confusion and hopefully avoid any conflicts later on.
#4 Send your invoices quickly
This one may seem particularly common sense, but it is very easy for owners and freelancers to procrastinate on sending out their invoices.
This usually happens in the service business where you work so hard on delivering the services that your energy is drained at the end of the day. The last thing you want to do is look at more documents, but now is not the time to take a nap.
You need to send your invoices out as soon as possible. The faster you send it out, logically, the faster you’ll get paid. For bigger clients, this is due to the business cycle. If you miss the cycle, you’ll have your invoices delayed for another 30 days.
#5 Include all the necessary details
One of the big reasons that invoices get delayed is because there is important and necessary information missing from the invoice.
When the accounting department gets a hold of the invoice, they will need to check the details to ensure it meets the information on the purchase order or what they have on record. If there are any details missing they will most likely put it aside to investigate and work on another invoice.
That means that your invoice will be delayed and you won’t get paid on time. Check the job description, dates, items (quantity and price), subtotal, taxes and total. Also make sure you’ve included your bank details and any other necessary information.
#6 Add overdue charges
You should, as part of the policies in #1, have included fees for late payments for your invoices. This will provide an incentive for your client to stay on track.
You should include a certain amount added to the invoice for any late payment. You can make the charge gradual so that, for example, the charge is added after 15 days, then 30 days, 45 days, etc.
You can also decide to make it a percentage of the original invoice amount (for example, 5-10%). You can also decide on a fixed rate, e.g. $20, charge for late invoices. However, the percentage is a much greater incentive.
Make sure, however, that you set your invoice due date at 15 days, not 30. With most small businesses having to wait 72 days on a 30-day invoice, it is better for you to set it at 15 days. That way, even if the client is late, they will not be as late as for the 30-day invoice.
#7 Monitor overdue invoices
The last thing to ensure you get your invoices paid is something you have to do after your invoices are already late. This means that you need to send polite invoice reminders on the day before your invoices are due.
It is important that you make your email polite and professional, as you don’t want to alienate or offend your client. That should do it, but if your client is still late a week afterwards, you should send another polite email reminder. It is best to make it short and to the point with only the necessary information.
Lastly, if the client does not respond, you should place a phone call. The actual human-to-human conversation will be enough to shake your client into action or at least tell you why there is a delay.
With these tips and tricks, you should have your invoices paid regularly. When you and your client are clear on the expectations set for you, you’ll be more mindful to not violate them. Also, with concrete prices and payment policies in place you’ll have documents to reference if any confusion comes up.
With that, you’ll see your invoices paid faster, your cash flow increase and your business grow steadily.
Bernard Meyer is the Head of Marketing at InvoiceBerry, the online invoicing software committed to helping small business owners send out invoices quickly and professionally. You can also find him on Twitter and LinkedIn.